CEE FX: HSBC Say European Growth, Rates Expectations Could Support CEE Further

HSBC note that CEE currencies continue to perform very well, and add that if the expectation of a Russia-Ukraine ceasefire was the initial trigger for the market’s appetite for CEE FX, two additional factors are now at play: expectations of stronger growth across Europe and the rise of a hawkish narrative from CEE central banks.

• Regarding the latter, HSBC believe that this week’s announcements around an increase in European spending have boosted positive sentiment. These announcements are particularly positive for CEE currencies since the recent macro data pulse has surprised to the upside, they say.
• Meanwhile, they note that the NBP’s hawkish shift was reiterated at both the January and February MPC meetings, providing a boost to the PLN, while the Hungarian central bank has is now appearing increasingly reluctant to cut rates this year.
• Even with reservations about the sustainability of current FX trends, HSBC say the combination of higher growth/rates expectations could continue to support the PLN and HUF in the near term.